Taylor Legal Blog

Zombie Ground Rents

Posted by Katherine L. Taylor, Attorney and CPA, Chief Problem SolverNov 06, 20110 Comments

Just when I thought Halloween was over, zombie ground rents seem to have risen from the dead.

The Baltimore Sun had a great article detailing the recent Maryland Court of Appeals ruling which overturned the method of extinguishing ground rents created by the Maryland Legislature in 2007. Ground rents are a tenure, created by a grant in fee simple, where the grantor reserves to himself and his heirs a  rent, which is the interest of the money value of the land. Ground rents apply to the real estate, but not the structures attached to the land, such as a home or outbuilding. Zombie ground rents are those with no active - or in some cases known - ground rent owner.

Ground rents in Maryland are often vestiges of colonial America, with some dating back to the 1600s. The fees associated with the ground rent are often nominal. Some ground rent owners do not attempt to collect the fees, as the costs associated with the collection are deemed too high compared to the actual rent. Additionally, some ground rent owners do not know that they have the right to collect at all, as they received the right as an inheritance. Absentee ground rent owners can make selling property incredibly difficult for homeowners, especially those seeking a mortgage from an out-of-state bank unfamiliar with the peculiarities of Maryland's ground rent system. Additionally, in Maryland, the owner of the ground rent can place a lien against the buildings if the ground rent is not paid. This has led to many difficulties for homeowners who are looking to sell their home, only to discover that a lien was placed upon the building.

In 2007, the Maryland State legislature attempted to remedy these difficulties by passing a law requiring ground rent owners to register their right with the State Department of Assessments and Taxation. If the ground rent was not registered, a homeowner whose property was encumbered could pay a fee and have the property released from the ground rent. On October 25, 2011, the Maryland Court of Appeals ruled that this provision of the ground rent legislation was invalid. The case, Charles Muskin, Trustee v. State Department of Assessments and Taxation, No. 140, September Term, 2010, held that not registering a property did not eliminate the property rights held by the ground rent owner. The Court held that the legislation provided for a taking without just compensation of the property rights of the ground rent owner, and noted that the legislation provided no method for appeal once the rights were extinguished. The court also noted:

Real property and contractual rights form the basis for economic stability, such as it is, has been, and will become again hopefully. Allowing the “mere will of the Legislature” to shift drastically the fee simple ownership of land or cancel contractualobligations will shake further the confidence of citizens in their constitutional protections from government interference.